Federal Reserve Monetary Policy Outlook 2026: Slightly Narrowed Rate Cut Space Forecast

According to analysts at BlackRock, including Dominique Vien and colleagues, will the Fed be able to maintain the pace of monetary easing seen in recent years? The answer is no.

The strategists at the world's largest asset management firm have issued an important statement: from 2026 onwards, the Federal Reserve will significantly limit the frequency and scale of rate cuts. This has profound implications when considering the current context.

**Why is the rate cut space narrowing?**

In the current easing cycle, the Fed has implemented rate cuts totaling 175 basis points. This figure indicates that monetary policy has approached very close to the neutral rate—that is, the level that neither positively nor negatively impacts the economy.

As the rate approaches the equilibrium level, the room for further rate reductions becomes increasingly limited. Unless the labor market deteriorates severely, forcing the Fed to act immediately, the Fed will maintain higher interest rates to preserve policy flexibility.

**How many rate cuts are markets forecasting for 2026?**

Data from LSEG reflects current investor expectations: only about two rate cuts are anticipated in 2026. Compared to expectations of a broad easing cycle, this number indicates a significant shift in market outlook.

Overall, BlackRock’s forecast reflects a new reality: the era of consecutive rate cuts may be over, replaced by a period where the Fed will be more cautious with each monetary policy decision.